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Solving Cash Flow Problems
Article by Pete Cooper

If any single term can define what it is that makes or breaks a business, it must surely be 'cash flow'. Even if you have the best staff, greatest investors and wildest ideas, with a bad cash flow situation your business is likely to go bankrupt rather quickly.

But the concept of 'cash flow' has been largely overlooked by the Internet press and the dot-com industry as a whole. It's safe to predict, however, that the companies striving to live out 2001 will be paying a lot more attention to their cash situation and trying to remedy their bad situations.

Infact, the recent bulk of job losses is a reflection of this. Companies are trying to get rid of things which are costing their businesses money. Sadly, full-time staff are extremely expensive, and many are now hiring freelancers or contracting outside agencies.

Cash flow is an important topic because it affects all businesses, no matter what industry they're in, their size or even their expertise. As such, it should be important to nearly all of our readers. But before we can tackle cash flow and explore the ways in which cash flow problems are solved, we need to fully define what cash flow is and why it can be a problem.

The Definition of Cash Flow

Simply, cash flow is defined as the pattern of a person or company's income versus its expenditures. That is, if your company has spent a total of $1 million and received $2 million in sales, over a single year, your 'cash flow situation' is good. If you had only had $500k in turnover in that year, your cash flow situation would be bad. Cash flow is primarily concerned with profit and loss. Good cash flow is when you're in profit. Bad cash flow is when you're running at a loss.

More technically, cash flow takes into account all of your financial dealings. It incorporates everything from net profits and the sale of assets, through to amortization of debts and depreciation. If you own a larger company, you may refer to this as 'free cash flow' which is where capital expenditure and shareholder dividends are also subtracted.

For our purposes, however, we will work with cash flow in its simplest form. The principle that a company's income should be the same as, if not higher than, its expenditures. Sounds simple. So why do so many companies get it wrong?

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